Introduction to

Accounting
 OBJECTIVES
❖ Define what accounting is
❖ Identify Nature of Business and Types of Ownership
Structures
❖ Identify the different users of Financial Statements
❖ Describe the Elements of Financial Statements
❖ Analyze the basic accounting equation

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 What is
Accounting?
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 Accounting…

﹡ is a service activity. Its function is to provide quantitative

information, primarily financial in nature, about economic
entities that is intended to be useful in making economic
decision
­ -Accounting Standards Council

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 Accounting…

﹡ is the process of identifying , measuring and

communicating economic information to permit informed
judgements and decisions by users of the information
- American Accounting Association

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 Accounting…

﹡ is the art of recording, classifying and summarizing in a

significant manner and in terms of money, transactions and
event which are, in part or at least, of financial character,
and interpreting the results thereof
- American Institute of Certified Public Accountants

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What is the Role
and Purpose of
Accounting?

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﹡To provide useful and timely information
about the financial activities of an
individual, business, or other organization.
It provides information to the stakeholders
to assess economic performance and
condition of the business.
﹡ 

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What are the
Nature of
Businesses?
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 Nature of Business
Service Business This provides services to the customers like
professional services, transportation,
entertainment etc.
Merchandising A type of business that buys and sells
business products
Manufacturing A business that converts raw materials,
business labor and overhead into finished goods that
are sold to customers
Agriculture The business is engage in planting of crops
and sells its products either in raw or
finished form of a profit

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What are the
Types of
Ownership
Structures?
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 Nature of Business
Proprietorship Is a business owned by a single
individual
Partnership Two or more persons bind
themselves to contribute money,
property, or services and divide
profits among themselves
Corporation A business that is owned by its
shareholders and is organized
under operation of law that has
separate and legal entity

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What are the
Elements of
Financial
Statement?
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 Statement of Financial Position
﹡1. Assets
﹡2. Liabilities
﹡3. Owners’ Equity

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 Assets
CURRENT ∙ are assets that can be realized (collected, sold, used up) one year after
year-end date. Examples include Cash, Accounts Receivable,
ASSETS Merchandise Inventory, Prepaid Expense, etc.
Cash ∙ is money on hand, or in banks, and other items considered as medium of
exchange in business transactions.

Accounts Receivable ∙ are amounts due from customers arising from credit sales or credit services.
Notes Receivables ∙ are amounts due from clients supported by promissory notes

Inventory ∙ are assets held for resale

Supplies ∙ are items purchased by an enterprise which are unused as of the reporting
date.
Prepaid Expenses ∙ are expenses paid in advance. They are assets at the time of payment and
become expenses through the passage of time.

Accrued Income ∙ is revenue earned but not yet collected

Short-term ∙ are the investments made by the company that are intended to be sold
investments immediately
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 Assets
NON-CURRENT ∙ are assets that cannot be realized (collected, sold, used
up) one year after year-end date. Examples include
ASSETS Property, Plant and Equipment (equipment, furniture,
building, land), long term investments, etc.
 
Property, Plant and ∙ are long-lived assets which have been acquired for use in
Equipment operations.
∙  
Long-term ∙ are the investments made by the company for long-term
investments purposes
 
Intangible Assets ∙ are assets without a physical substance. Examples include
franchise and copyright.

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 Liabilities
CURRENT ∙ Liabilities that fall due (paid, recognized as revenue)
within one year after year-end date. Examples include
LIABILITIES Accounts Payable, Utilities Payable and Unearned
Income
Accounts Payable ∙ are amounts due, or payable to, suppliers for goods
purchased on account or for services received on account

Notes Payable ∙ are amounts due to third parties supported by promissory

notes.
Accrued ∙ are expenses that are incurred but not yet paid
Expenses (examples: salaries payable, taxes payable)
Unearned Income ∙ is cash collected in advance; the liability is the services to
be performedor goods to be delivered in the future.

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 Liabilities

NON-CURRENT ∙ are liabilities that do not fall due

(paid, recognized as revenue)
LIABILITIES within one year after year-end
date. Examples include Notes
Payable, Loans Payable,
Mortgage Payable, etc.

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 Owner’s Equity
OWNER’S EQUITY ∙ is the residual interest of the owner from the
business. It can be derived by deducting
liabilities from assets.
Account Titles used for Equity Account.
 
Capital ∙ is the value of cash and other assets invested in
the business by the owner of the business.
∙  
Drawing ∙ is an account debited for assets withdrawn by
the owner for personal use from the business.

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 Income Statement
﹡ 1. Income -is the Increase in resources resulting from performance of
service or selling of goods. Example of Income Accounts: Service
revenue for service entities, Sales for merchandising and manufacturing
companies

﹡ 2. Expenses - Outflows of assets resulting from the sale of goods or

services in order to produce revenue

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What is the
Basic
Accounting
Equation?
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Asset = Liabilities + Owner’s Equity
The accounting equation must always in balance. The peso
amount on the left side of the equation should always equal the
peso amount on the right side of the equation.

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Expanded Accounting Equation

Asset = Liabilities + Equity ( -

Drawing + Revenue
- Expenses)

Income Statement

Profit (Loss) = Revenue - Expenses

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